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Smartphone Market Cooling in 2019 with a YoY Decline

TrendForce reported that that the global smartphone production volume for 4Q18 totaled 383 million units, staying at a constant level from the previous quarter.

In response to the slacking consumer demand, branded smartphone makers scaled back their production in 4Q18 and paid more attention to inventory management. Looking ahead to 1Q19, they have set modest production targets due to the lower-than-expected sales in the previous quarter. Even though prices of components have been falling, smartphone makers will remain passive in their stock-up efforts since they are under inventory pressure. TrendForce forecasts that the global smartphone production volume for 1Q19 will come to 307 million units, showing a YoY drop of 10%.

The latest first-quarter production figures from the major smartphone makers indicate that the top six brands by production volume for 1Q19, in order, will be Samsung, Huawei, Apple, Xiaomi, OPPO, and Vivo. The leader Samsung has begun adjusting its product strategy since 2H18 in order to challenge the Chinese brands head on in the market segment for economically priced but high-spec devices. For now, the Galaxy J devices still account for nearly 50% of Samsung’s total smartphone production. They will continue to be the pillar that maintains the overall production level in the near future. TrendForce forecasts that Samsung’s total volume for 1Q19 will reach 70 million units.

In the future, Samsung is expected to raise the production of the Galaxy A devices so that they will gradually substitute the Galaxy J devices as the brand’s mainstream offerings then. In emerging markets such as India, Samsung plans to heavily promote the newly established Galaxy M series that feature large-capacity batteries. These actions, taken together, imply that Samsung is redefining its brand image to adapt to the challenges from the Chinese rivals and to maintain its advantage in market share.

After rising to second place in the global ranking, Huawei continues to perform well despite the market headwinds. Its total production volume for 1Q19 is forecasted to increase by nearly 10% YoY to 46 million units. Besides having extensive product lines and establishing a strong presence in overseas markets, Huawei has also succeeded in wresting market share away from iPhone in the high-end segment in China with its P and Mate series. Going forward, Huawei will be releasing the P30 and P30 Pro in 1Q19 as per schedule. Both models will serve as the brand’s flagships for the first half of the year. Furthermore, they will run on a modified version of Kirin 985, which is the platform for the Mate 20 generation. With respect to other specifications, the P30 and P30 Pro will be generally similar to models under the P20 and the Mate 20 generations. However, there is a possibility that the P30 Pro will feature three rear cameras plus a ToF module.

Looking ahead, the future development of the U.S.-China trade war would bear some influence on Huawei’s smartphone business. In Europe, Huawei’s presence as a provider of telecom equipment has also come under suspicion. These issues will likely to have some adverse effects on Huawei’s performances in the smartphone market.

Apple has been reported to have consistently marked down their iPhone production targets since 4Q18 in order to control its inventory. To stimulate purchases, the company has also lowered the prices of the latest models for some regions in the current quarter. Nevertheless, Apple’s pricing strategy as a whole is not conducive to driving iPhone sales in the present market environment. Furthermore, the sales ban on older iPhone models in China will deny Apple a sizable portion of consumer demand. Based on its performances so far in the first quarter, TrendForce forecasts that Apple’s total iPhone production volume for the period will come to just 41.5 million units, registering a significant YoY decline of nearly 26%. The brand will be in third place of the production ranking in 1Q19.

Xiaomi’s smartphone production registered its first decline in 4Q18 after eight consecutive quarters of growth, falling to approximately 30 million units. The greatest challenge faced by Xiaomi currently is the lack of R&D into cutting edge technologies and too much focus on low-price devices with thin margins. On one hand, Xiaomi has to rely more on marketing to drive sales of devices. On the other hand, thin margins can limit the profit gains that can be plowed back to R&D. The situations result in more resources going to marketing and less going to R&D, thus forming a vicious circle. TrendForce believes that Xiaomi is trying to remedy the aforementioned problems by recruiting more R&D talents and adjusting the market positioning of its subsidiary brands to retain the overall market share. Nevertheless, Xiaomi’s quarterly smartphone production is projected to drop in 1Q19 because it is also concentrating on reducing the excess inventory carried over from 4Q18. TrendForce forecasts that Xiaomi’s total volume for 1Q19 will fall by 12% YoY to around 26 million units.

OPPO and Vivo are expected to be consecutively ranked fifth and sixth place, respectively, in the production ranking for 1Q19. Both brands posted QoQ decline in their production volumes in 4Q18 as the Chinese market had become saturated. Huawei’s recent success in raising its sales in China has also impacted OPPO’s and Vivo’s performances. For 4Q18, OPPO’s total smartphone production volume reached 29 million units, while Vivo’s came to 24.1 million.

OPPO and Vivo share the same goal of reducing their inventories of whole devices during the first quarter. They also place their hopes on their upcoming flagships to maintain their market shares. TrendForce forecasts that OPPO’s total production volume for 1Q19 will approach close to 23 million units, and Vivo’s total volume for the same period will be around 20 million units.

TrendForce notes that major brands will continue to pursue hardware optimization in the immediate term, mainly focusing on these four main areas: display (i.e. high-resolution displays and all-screen design), camera (i.e. high-resolution multi-lens cameras and in-display cameras), biometric recognition (i.e. in-display fingerprint sensors), and memory (i.e. high-density solutions). However, TrendForce believes that smartphone makers, in the long run, will have to do more than just upgrading the hardware specifications of their devices. To expand market shares, they will also need to invest in software development and explore peripheral opportunities.